Oil Is in Bullish Trend, En Route to $98: Charts

The changes in the trend of the U.S. dollar are helping to push commodity prices higher. The impact of this is also seen on the NYMEX oil chart, where prices have broken significantly above the historical resistance of $88 in recent weeks. Tensions in the Korean peninula are expected to add to the upward momentum.

The oil market is defined by the continuing power and influence of the historical support and resistance levels. The most important of these levels are $68, at $78 and near $88. This creates a wide trading band from $68.00 to $88.00. Oil has been trading within this band since 2009 August until 2010 November. During the period, the type of trading activity has always the rally-and-retreat pattern, or a sideways market, without any strong long-term trend direction.

Hence, the move above resistance near $88.00 is important, as especially so for the following reasons.

First, this is the first breakout above $88 since 2007 October. This is a very significant price development. $88 is a significant support level for oil between 2007 November and 2008 February. It was the lower edge of a consolidation band between $88 and $98.

Second, the price breakout is part of a rising trend. This uptrend started to develop in September 2010. The position of the uptrend line was confirmed with the retreat-nd-rebound from $81.50 in November. The uptrend line is significant because it defines a longer-term trend and not just a short-term rally.

The new uptrend is confirmed by two situations.

The first situation is a price retreat to the old resistance support level near $88. A rebound from this level is very bullish. The result is a very fast move towards the next resistance target.

The second situation is a price fall below $88 and a rebound from the value of the uptrend line, currently near $84.00. This price activity confirms the long term uptrend pressure. The result is a slower upwards price move towards the next resistance target.

The upside target for the breakout above resistance near $88 is calculated by using the width of the upper section of the broad trading band. This value is projected upwards to give a target near $98.00.

The target near $98 is also an historical support and resistance level for oil. This was a significant resistance level for oil in November 2007 to February 2008. The breakout above $98 in February 2008 was rapid and prices moved up very quickly to $110 and higher. The technical resistance level is $98. The psychological resistance level is $100. When the psychological $100 level is broken then the oil price moves up very rapidly and this is the danger in this market in 2011.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. He is now also on Facebook.

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